Zinc Lozenge Firm Suspects Campaign to Cut Stock Price

Zinc lozenges may be the hottest item in fighting colds, but the company that makes them says it’s the victim of a smear campaign that is driving down the price of its stock.

Quigley Corp., maker of Cold-Eeze zinc lozenges, asked the Securities and Exchange Commission and the National Assn. of Securities Dealers this week to investigate fake news releases, faxes and a false online posting.

“Someone is deliberately trying to harm the company, its customers and its stockholders,” said Guy Quigley, chief executive of the Doylestown, Pa.-based company.

There was no immediate response from the SEC or the NASD.

A broker at Merrill Lynch & Co. in Doylestown said he suspects “short sellers,” investors who profit when shares of a company decline.

The company’s stock rose sharply after researchers at the widely respected Cleveland Clinic reported in July that people given Quigley’s lemon-flavored lozenges recovered from their colds in 4.4 days, compared with 7.6 days for a group taking placebos.

Quigley shares, traded on the Nasdaq Bulletin Board for very small stocks, escalated from a low of 56 cents a share in April to a high of $37 on Jan. 10, then plummeted to $18.68 by Jan. 14. They have recovered somewhat since. On Wednesday, the stock was down 50 cents to $25.50.

The company said someone issued a fake news release in December saying that Quigley’s chief financial officer had resigned. In fact, he’d been promoted.

This month, another fake release said the company intended to sell stock overseas, which could dilute the value of U.S. shares.

In addition, someone posing as a Quigley executive posted a phony announcement on America Online saying the company was planning to introduce a toothpaste.

Thomas MacAniff, an attorney representing Quigley, said that estimates by brokers show there has been substantial short selling. He added that he doesn’t know if the short sellers are behind the disinformation campaign.

Short sellers borrow shares and then sell them immediately, betting on a decline in the price. If that happens, they can buy the shares back more cheaply, replace the borrowed shares, and pocket the difference.

Christopher Lewis, an assistant vice president at Merrill Lynch in Doylestown, said that if the false information was spread by short sellers hoping to push down the price, that could be illegal stock manipulation.